Forthcoming in the Journal of Economic Dynamics & Control Asset Prices, Traders ’ Behavior and Market Design∗

The dynamics of a financial market with heterogeneous agents are analyzed under dif-ferent market architectures. We start with a tractable behavioral model under Walrasian market clearing and simulate it under different trading protocols. The key behavioral fea-ture of the model is the switching by agents between simple forecasting rules on the basis of a fitness measure. By analyzing the dynamics under order-driven protocols we show that the behavioral and structural assumptions of the model are closely intertwined. ∗An earlier version of this paper was prepared while Mikhail Anufriev was visiting UNSW, whose hospi-tality he gratefully acknowledges. We wish to thank all the participants of the Symposium on Agent-Based Computational Methods in Economics and Finance in Aalborg, of the Workshop on “Complexity in Economics and Finance ” in Leiden, and of the seminars in Amsterdam, Pisa, Sydney, and Trieste for useful comments and stimulating questions. We especially thank Giulio Bottazzi, Buz Brock, Cars Hommes, and Florian Wagener for providing very detailed comments during different stages of the work. We also thank the editor and two anonymous referees. Financial support for this research was provided by the Complex Markets E.U. STRE